Thoughts on the energy-cost crisis.

We are fortunate to have alternative means of heating our house, with a log-stove and open fire in addition to the gas central heating.  We also have a solar thermal panel providing hot water when the sun shines, even in winter, although I have to admit that a January shower relying solely on the solar panel is a little more bracing than might be wished for.  We are not therefore completely dependent on gas, although electricity is more difficult to sidestep as the millions of British citizens who are totally reliant on electricity alone for space and water heating know only too well.  In our own small way, it’s comforting to have some resilience.

One of the first obligations of a responsible government is to ensure the resilience of the systems necessary for the welfare of its citizens and the working of its economy.  It’s now apparent that European governments have failed in this respect and have all become overly dependent on imported gas.  Unfortunately, as will become clear later in this blog, our UK Government has failed more than most.

We hear very little from the government about the looming energy-price crisis – a crisis, not just for millions who are strapped for cash, but for business.  If businesses go bust then unemployment will rise, the tax take will diminish, and benefits will rise, all in an exponential dynamic.

 

Why are high gas prices leading to high electricity bills?

Windfarms are now common throughout much of UK, particularly in the north of England and in Scotland and it is the case that wind energy produced in Scotland is equivalent to almost all of that country’s consumption.  

This is not to say, as it often is, that Scotland is totally self-sufficient in wind power. Power delivered to consumers is derived from a mix of generation – renewable, coal, gas and nuclear - according to what is available day to day.  Output from Scotland just goes into that mix, to be supplied to consumers wherever they are in UK.  It’s the mix that leads to the first omission. 

UK has comparatively little storage capacity for renewable energy, although investment in storage is now increasing.  This means that when the wind ceases to blow, we have to rely on the other components to manufacture the electricity Britain needs.  With nuclear and coal being wound down this leaves only gas.  We are therefore failing to capitalise on the abundance of low fuel cost, but capital investment heavy, wind power generated in UK and are instead still heavily reliant on gas, the wholesale price of which is determined on the international market.

Which brings us to omission number two:  Successive UK governments have permitted energy companies to retract from domestic gas storage facilities in favour of purchasing gas on the international market on a short-term requirement basis.  When gas prices were low companies preferred to rely on purchasing to meet immediate needs rather than investing in maintenance of existing storage facilities and construction of more.  Distributing profits as dividends rather than applying them to investment also kept shareholders happy of course.   As a result, we have storage for about 2% of our annual requirement compared to about 25% across the EU – now being rapidly increased to 80%.  We are therefore completely at the mercy of international markets for the cost of our electricity.  Why government didn’t drive a strategy and was content to allow producers to take this line is not clear, but it demonstrates a laisez-faire attitude to diligence and robustness.  Recent events have led UK to now invest in the mothballed Rough gas storage facility, which should double capacity.

The pricing structure of the UK electricity market is complex and contains something of an anomaly. The cost of the various fuels from which power is derived varies, from a fairly nominal value for renewable energy to staggeringly expensive for gas currently brought on to the wholesale market. Due to a long-standing agreement between government and the electricity industry the cost of production is tied to the cost of the most expensive component in the mix.  There is more detail on this, and an illustrative example, here.  This was rooted in a need to “kick start” the renewables sector some years ago but, whatever the logic behind this, the reality is that the price we pay for “free” renewable energy is governed by the price of gas.  Surely it’s time to reconsider this?  Allowing renewable energy to flow to consumers at the true cost of production plus operating profits seems a comparatively easy fix.  The current structure seems to unduly favour the hydrocarbon sector by preventing open price competition with renewables.

The impartiality of Ofgem is also questionable. The energy regulator has an obligation to have due regard to the impact on elderly people, children and people with disabilities before confirming the price cap increase.  You may be aware that Good Law Project, Fuel Poverty Action and the Highlands & Islands Housing Associations Affordable Warmth Group are suing Ofgem over its failure to carry out this very obligation.

The UK Government’s regard for the interests of the hydrocarbon sector appears to influence strategy unduly and I think questions need to be asked as to why this is so.  It is a matter of record that oil and gas firms donate large sums to The Conservative Party and that Liz Truss, who I strongly suspect is being manoeuvred into position by the Tufton Street wing of the Conservative Party assisted by the mainstream press, is being lobbied by the US fossil-fuel industry.  

Back to our own domestic situation, we have considered installing a solar PV array on the garage roof to defray some of the increased costs, but the small size would bring only a marginal gain and it seems to me that a national strategic approach to the problem is needed rather than those who can afford to do so following up their own individual solutions.

Will I be celebrating the Jubilee? With a heavy heart, "No".

 

 

As a young married man living then in Yorkshire, I took satisfaction in celebrating The Queen's Silver Jubilee - the epitome of what it meant to be British.

 

On the evening of 5 February 1977 Kathleen and I excitedly climbed Pen Hill, near Leyburn, to join a throng of a few dozen folk to participate in the lighting at midnight of a huge bonfire, one of a series of interlinked beacons across the whole of the UK, to mark the jubilee.  “God save The Queen” rang out, albeit a little discordantly, through the chill Yorkshire night, and we retired to bed happy and content.

 

There was a palpable sense of pride in being British, a pride shared throughout the whole of UK, and It was a joy to publicly share in the happy celebration.

 

Now I can no longer muster enthusiasm. Older, certainly, and I do believe wiser (although that’s ultimately for others to judge) I now see Britishness in a very different light.  We have declined so hugely during my lifetime and continue to do so at an alarming pace. I now know of dark episodes in Britain’s colonial history which were never referred to in my history lessons at school.  If I recall correctly, those tended to paint a picture of a benevolent people educating and civilising “the heathen nations of the world” in an act of selfless magnanimity. The surge of pride experienced on hearing Elgar's stirring anthem "Land of Hope and Glory" at The Proms is now faded.

 

I hold The Queen in high regard. Seven decades is no mean feat - decades which have brought unimaginable change to the world and the balance of power within it – and I applaud her for that.  I don’t buy into all the criticism of royal wealth and of The Queen's vast estate.  She is merely guardian of all of that for posterity.  Until very recently she has stoically and selflessly carried out her duties. I admire her for that. She has no ability whatsoever to enjoy the invaluable freedom of venturing out informally in public to do as she might wish. Just try to image that. She is ensnared in a role not of her choosing yet fulfils it with grace and fortitude. I don’t envy her lot.

 

But it seems to me that the monarchy is being used by the British state (I dislike that overly sinister phrase but can’t think of another to succinctly encompass the Whitehall establishment and the security agencies acting together) as a cover for pernicious strategies.  Johnson, who I increasingly suspect is being used as a useful stooge, steadily chips away at the structure of our fragile democracy apparently, it seems, with the acquiescence of the majority of the electorate (in England at least, and only England has the electoral mass to change UK politics at the ballot box).  In this, he’s enabled primarily by his band of mostly supine and incompetent MPs concerned more with their individual future political prospects than with the interests of their constituents and the wellbeing of the state, and backed by the mainstream press, whose owners' commitment to Britain and the British electorate seems tenuous at best.  Once democracy is ousted in favour of a self-serving and controlling elite, it will be very difficult indeed to restore it.  This is not the Britain I want to be part of.

 

While the majority of European nations enjoy integrated efficient transport systems and public services which are fit-for-purpose, Britain is left with a constant sense of things about to fail – overcrowded and dirty trains prone to breakdown and lateness, bus and train timetables out of kilter, NHS under pressure, perilously long waiting times for ambulances, errors and lack of attention to detail by employees whose role is to deliver services, and so on. There's no need for it to be like this.  We are one of the wealthiest states in the world.  

 

We have an obese population, addicted to fast food and gorging their way to a state of ill-health as potential clients of the private health practitioners and insurance providers waiting in the wings to “help out” the failing NHS.    

 

The privatisation programme championed in the 1980s, and sold to the electorate on the rationale that private investment would refurbish and modernise failing systems with no drain on the public purse, has led to a disjointed and expensive transport network suffering from under-investment, and to a sewage system in England which is literally bursting at the seams because investment in infrastructure hasn’t kept pace with a burgeoning population and rapid urban growth.

 

Unlike France, where 85% of the national electricity supplier is publicly owned enabling fuel price increases to be limited to 4%, we in Britain have little means of controlling gas and electricity prices.  The energy price cap calculated by Ofgem brings no effective protection.  In an earlier blog I referred to it being artificially high because it was based on a surge in wholesale prices as suppliers bid for forward purchases at the start of the Ukraine war, a surge which proved to be temporary and which has now lapsed.  (The chart opened by that link also illustrates how low the UK’s gas storage capacity is compared to other European nations.  See here for the background to this.)  The amount of the cap is dependent on historic prices and the October increase is derived from the average wholesale price during the period January - August 2022.  It’s not at all clear to me how Ofgem’s Regulator can ascertain that average price now, but he has already announced a further 32% increase.  Hopefully, given the apparent levelling out again of  wholesale prices the cap will reduce again, but that of course will depend on future market trends.

 

The chancellor’s broadly welcomed move last week will in effect collect tax from energy producers only to give much of it back to suppliers in part payment of consumer’s bills.  What we are seeing is a broad transfer of value from consumers to energy suppliers, supported by government. The effect of high energy prices on financially pressed households will be crushing and has implications for health and wellbeing, and of course high energy costs also feed straight through to production and transportation costs. 

 

UK's departure from The European Union, while throwing a lifeline to high-end tax avoiders, has brought in its wake staff shortages across many sectors and has been disastrous for our international trade, with the Office for Budget Responsibility (OBR) stating "the long-term impact of Brexit will be worse for the UK economy than Covid-19".  Meanwhile there are fears over reduced food and animal welfare standards and over the safety implications of allowing lorry drivers to work longer hours.

I see parallels between -

1- the influence on British popular opinion, across the whole political spectrum, and on political direction, of the mainstream newspapers whose owners, you will recall from the link above, are mostly resident abroad and paying no tax to the Treasury;

2 - the under-investment in below-par public systems and services in a wealthy country as referred to above;

3 - the degree of high-end tax avoidance by proprietors of businessess making their profits in Britain but registered abroad.  This, in effect, is syphoning cash - significant sums of cash - out of the UK tax system and is depriving us of investment finance.

All of these get in the way of us being the Britain we could, and should, be.

So, as I stated above, I can’t muster enthusiasm to celebrate the jubilee. The Britain I grew up in - a Britain which was valued and respected throughout the world - is being systematically undermined and devalued and its citizens taken for fools.  The electorate is fed a diet of superficial news and diversions while the freedoms and privileges which are key to democracy are steadily erased.  

The Jubilee, in my view, is being hijacked as just another such diversion, and we're all expected to play along with it as if everything in the garden is just fine. The popular press will really go to town for the occasion and the BBC will seek to bathe us in a week of sentimental sycophantic nostalgia.

 

Well, I'm not playing that game.  I despair for the direction we're set on and feel I have no ability to influence it. In marked contrast to the 1977 event, the Platinum Jubilee seems like a sham - a flamboyant but essentially hollow facade for a Britain that used to be great and united but is now disintegrating before our very eyes. 

 

I mean no discourtesy to the Queen, who I value and respect.  I would value her even more were she to speak out against what her wrecking government is doing to Britain.